Maximum fair price (MFP) expansion is changing both revenue and expenses for Program of All-Inclusive Care for the Elderly (PACE) organizations. Medicare's first negotiated MFPs took effect for ten Part D drugs on January 1, 2026. Fifteen additional drugs were selected for 2027; however Xarelto, Entresto, and Stelara – three of the ten drugs with MFPs in 2026 - are scheduled to no longer be subject to MFP in 2027 since the generic or biosimilar competition became available. In 2028, the program expands again and, for the first time, reaches drugs payable under Medicare Part B.
For PACE organizations, lower prices do not automatically translate into a comparable improvement in margin. The effect depends on utilization, rebate and purchasing arrangements, the Part D bid and reconciliation process, and the county-based capitation supporting Part B services. The real question to ask is: How will pharmacy expense and Medicare revenue shift in relation to one another for your organization?
Nearly 1/3 of PACE Part D spend is tied to drugs subject to MFP for 2027
1. MFP exposure is becoming a broader pharmacy management issue.
The first two negotiation cycles focused on Part D drugs, including products widely used for diabetes, blood clot prevention, and cancer. The 15 drugs newly selected for 2027 represented about 12.5% of PACE Part D gross costs, and drugs from the first two cycles together accounted for almost one-third of PACE Part D spend. The third cycle adds 15 newly selected products for 2028, including Part B drugs for the first time, plus a renegotiated price for Tradjenta (originally effective in 2027) that takes effect January 1, 2028.
2. Lower Part D ingredient costs must be viewed alongside Part D revenue and reconciliation.
MFPs reduce the ingredient cost of high-utilization—and generally high-cost—selected drugs. However, the net effect varies by organization. Manufacturer rebates may decline as ingredient costs fall, and existing 340(b) acquisition prices may already be below the MFP. In addition, POs are not fully capitated for Part D: CMS reconciles Part D payments after year-end, subject to risk sharing. Lower drug costs can therefore be accompanied by lower revenue or reconciliation payments. Because the 2027 MFP impact was incorporated into the 2027 Part D bid, POs should monitor actual utilization and net costs against the assumptions supporting that bid.
3. Part B creates a different risk because PACE bears full capitated responsibility.
Beginning in 2028, selected drugs include products payable under Part B. POs do not submit bids to cover Part A and B costs. Rather, their capitated payments are derived from Centers for Medicare and Medicaid Services (CMS) rates by county, which are adjusted for participant frailty and risk score. Those county rates are based on Medicare fee-for-service experience and are expected to reflect MFP-related price reductions. As a result, lower Part B drug costs may be accompanied by a lower Part B payment rate. Unlike Part D, there is no year-end reconciliation or risk corridor to absorb any variance. Managing Part B drug expense to the available capitation will remain essential.
4. The negotiated drug list is dynamic, so forecasts need active monitoring.
Once selected, a drug generally remains subject to an MFP only while it lacks generic or biosimilar competition. Xarelto, Entresto, and Stelara illustrate how market entry of lower-cost alternatives can remove products from the program. Even though these three drugs will no longer be subject to an MFP, the presence of competing generic or biosimilar products should constrain prices. In addition, the Inflation Reduction Act’s (IRA's) inflation rebate provisions may limit price growth above inflation. At the same time, CMS can add new drugs and renegotiate existing prices. Pharmacy drug cost forecasts should distinguish changes in utilization, acquisition cost, rebates, product mix, and Medicare revenue rather than applying a single trend adjustment.
Looking ahead: How can PACE organizations manage their pharmacy expense?
The central financial challenge has not changed: POs must manage pharmacy expense relative to the revenue supporting it. What is changing is the number of affected products, the entry of Part B drugs, and the shifts in selected-drug status. During planning in 2027 for 2028 costs, organizations should establish a clear baseline for use of the drugs selected for 2028, identify whether they are paid under Part B or Part D, and assess how expected cost changes align with projected Part D revenue and Part B capitation. Final negotiated prices for the 2028 cycle are scheduled to be announced by November 30, 2027, providing an important checkpoint for updated projections.
How an actuarial consultant can help a PACE organization
Actuaries help POs translate public MFP developments into organization-specific financial decisions. The support can include reviewing selected-drug utilization, evaluating pharmacy purchasing and rebate arrangements, assessing bid and capitation implications, and monitoring emerging generic and biosimilar competition. These analyses help leadership understand where results are sensitive to local experience while protecting proprietary methods and assumptions. For more information, please contact your Milliman PACE consultant.
References
Centers for Medicare and Medicaid Services. (August 2023). Medicare Drug Price Negotiation Program: Selected drugs for initial price applicability year 2026. Retrieved October 26, 2026, from https://www.cms.gov/files/document/fact-sheet-medicare-selected-drug-negotiation-list-ipay-2026.pdf.
Centers for Medicare and Medicaid Services. (January 2025). Medicare Drug Price Negotiation Program: Selected drugs for initial price applicability year 2027. Retrieved October 26, 2026, from https://www.cms.gov/files/document/factsheet-medicare-negotiation-selected-drug-list-ipay-2027.pdf.
Centers for Medicare and Medicaid Services. (January 2026). Medicare Drug Price Negotiation Program: Selected drugs for initial price applicability year 2028. Retrieved October 26, 2026, from https://www.cms.gov/files/document/factsheet-medicare-negotiation-selected-drug-list-ipay-2028.pdf.